Economic Updates for February 2024

Atlanta FED GDPNow estimate is 3+% for Q1 2024. It appears we are off to a great start in the new year.

The LEI after giving a recession signal for almost a year is now firmly reverting back! The LEI's reading may be misleading in the post COVID era. Tom Lee of Fundstrats opines that LEIs may be signaling a recession incorrectly because we are fighting an inflation cycle and not a business cycle.

The 10 year has steadily climbed right after the New Year. The Dollar has kept pace with this and creeping higher.

Energy prices are marginally higher since the New Year. The tension in the Red Sea does not seem to have had a major impact.

The divergence in Gold and Bitcoin is continuing this month! The flows into spot ETFs in BitCoin has pushed BitCoin parabolically higher while gold has been languishing as the real yields have climbed.

Same comment as above in Gold.

The CPI reading for the month of January 2024 came at 0.5% surprising the consensus expectation of 0.3%. While it is higher than expected, it by itself does not derail the glide path of inflation downward.

PPI is projected to be -0.2% in December 2023.

This is the headline inflation number that everyone talks about. For January 2024 we are at 3.1%. We are still in the right neighborhood. In the coming months, we hope the inflation remains contained. Historically, inflation is known to bounce back a few times before it finally subsides.

CPI Components Last Month Source BLS.gov Consumer Price Index

CPI Components This Month
The contributors to inflation have remained fairly consistent. (Please note that the y-axis in both the graphs have different scales).

This survey data shows that inflation one year from now is expected to be 2.9%. It has come down from the estimate last month.

University of Michigan's consumer sentiment surged to 79 this month in sharpe contrast to the last year. The renewed optimism is perhaps reflecting the drop in inflation and inflation expectation.

The AAII sentiment has remained consistently bullish even after three months of run up in the S&P 500.

First time since September 2022, we are seeing an expansion in Manufacturing. This is a very welcome reading at 50.7!

Services PMI reading has been steadily above 50 over the last few months and the activity appears to be gradually increasing.

Industrial Production has turned positive this month with a reading of close to 1%!

Retail Sales have soared 0.6% last month following an increase of 0.3% in the month previous to that.

Non-farm payrolls have stubbornly been too good indicating economy is still adding jobs. This month the jobs number came in around double the expectation. This robust job market indicates labor is fairly tight.

Total Vehicle sales fell by 6.9% in the last month after reaching the highest level for the past two years.

Used car prices have been consistently failling for the past few months. This has been a tailwind for core inflation in its downward trend.

New home sales soared by 8% compared to the previous month.

The mortgage rates have followed the 10-year Treasury yield higher over the last few months. Recently as the inflation is contained and 10-year Treasury yield has rolled over, the mortgage rates has come down a tad bit.

The unemployment rate has remained low despite the FED's attempt to induce a slowdown. This indicator is a lagging indicator and we do expect to see this number creep up if recession becomes imminent.

This chart will be the first indicator of a telltale sign that unemployment is increasing. As you see the continuing jobless claims number rise, it implies the people who lost their jobs are not going back to labor force fast enough and the unemployment rate is starting to creep higher. Over the last couple of weeks, it has trended lower, indicating a strong job market. It could turn out to be seasonal and it needs to be watched over the next few months if the continuing claims build up.

This month again, the wage inflation continues to exceed the headline inflation as it recorded a reading of 5.0% compared to the headline inflation of 3.1%. This is an indication that inflation may become entrenched in the labor market and may lead to wage/price spiral. Something that the FED does not want to see and makes it likely to keep rates higher for longer.

The yield curve has been flattening over the last month and is reading -0.29% or 29 basis points from being fully flat.

Yield curve - Then

Yield curve - Now
Notice how both the 2 year part of the curve as well as the long end has shifted upwards.

Year to date, healthcare, technology and communications sectors have been the out performing the rest of the sectors. Notice how the laggard of 2023, real estate is lagging behind again this year.

If the economy were to enter a recession, it is likely that some of the companies will struggle to keep up with their debt payments causing their credit spread to widen. This indicator shows how the credit spreads have been behaving so far.

The tight spread indicate that the soft landing narrative is actually playing out.

A spike in put / call ratio indicates that investors are very apprehensive about a sudden fall in the equity markets. In January/February, we have not seen any interesting activities.

The current earnings forecast by equity analysts estimate the earnings potential for S&P 500 companies to be around $245 which translates to a price to earnings ratio of 20.3 at the current S&P 500 price level. This is above the 5 year and the 10 year averages. The market is becoming pricier by the day.

• Trillium Square Advisors LLC is a registered investment adviser offering advisory services in the state of North Carolina and in other jurisdictions where exempted. Registration as an investment adviser does not imply a certain level of skill or training, and the content of this communication has not been approved or verified by the United States Security and Exchange Commission or by any state securities authority.
• Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments or investment strategies. Market data, articles and other content in this presentation are based on generally available information and are believed to be reliable. Trillium Square does not guarantee the accuracy of the information contained in this presentation. The information is of a general nature and should not be construed as investment advice and relied upon in making investment decisions.
• Investments involve risk and are never guaranteed. Be sure to first consult with a qualified financial adviser before implementing any strategies discussed herein.
• Past performance is not indicative of future performance.

• The content of this communication and any accompanying documents are not to be copied, excerpted or distributed without express written permission of the firm. Any other use beyond its author’s intent, distribution or copying of the contents of this presentation is strictly prohibited. Nothing in this document is intended to be legal, accounting, or tax advise, and is for informational purposes only.
• Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular investment strategy. Hypothetical performance for illustration purposes only.
• Trillium Square will provide all prospective clients with a copy of our current Form ADV, Part 2A (Disclosure Brochure) upon request. At anytime you can view our current Form ADV, Part 2A at https://adviserinfo.sec.gov